CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
3 2 5 Tests of Details of Balances Explained

2 5 Tests of Details of Balances Explained

Key Concepts

Tests of Details of Balances

Tests of details of balances are substantive procedures performed by auditors to gather evidence about the ending balances in the financial statements. These tests are designed to detect material misstatements in the account balances.

Substantive Procedures

Substantive procedures are audit procedures that provide direct evidence about the amounts and disclosures in the financial statements. They include tests of details of balances, tests of transactions, and analytical procedures.

Direct Tests of Balances

Direct tests of balances involve examining specific items in the financial statements, such as accounts receivable, inventory, and cash. These tests are performed to verify the accuracy and completeness of the balances.

Example: An auditor may physically count the inventory on hand to verify the inventory balance reported in the financial statements.

Analytical Procedures

Analytical procedures involve comparing financial information with expectations derived from ratios, trends, and other relationships. These procedures help identify unusual items or trends that may indicate potential misstatements.

Example: An auditor may compare the current year's revenue with the previous year's revenue to identify any significant variances that require further investigation.

Assertions

Assertions are the implicit or explicit representations made by management about the financial statements. Auditors use assertions to design tests of details of balances that address the risks of material misstatement.

Example: Assertions for accounts receivable may include existence (the receivables actually exist), completeness (all receivables are recorded), and valuation (the receivables are recorded at the correct amount).

Audit Risk

Audit risk is the risk that the auditor may unknowingly fail to modify their opinion on financial statements that are materially misstated. Audit risk is composed of inherent risk, control risk, and detection risk. The auditor assesses these risks to determine the appropriate substantive procedures.

Example: If a company operates in a highly regulated industry, the inherent risk of non-compliance may be higher, requiring the auditor to perform more extensive tests of details of balances.

Examples and Analogies

Consider tests of details of balances as "spot checks" in a financial audit. Just as a quality control inspector checks specific items in a production line, an auditor checks specific items in the financial statements to ensure accuracy.

Substantive procedures are like "direct inspections" that provide clear evidence of the condition of the items being audited. Analytical procedures are akin to "trend analysis" that helps identify anomalies that may require closer inspection.

Assertions are the "statements of truth" made by management, and audit risk is the "margin of error" that the auditor must manage to ensure the financial statements are free from material misstatement.